Bank-specific Determinants of Net Interest Margins in Indian Banks: Evidence from Bank-level Data

This article examines the bank-specific determinants of net interest margin (NIM) in Indian banks over the period 2001–2019 using a dynamic panel data framework. The analysis focuses not only on how capital adequacy, liquidity, cost inefficiency, asset quality and relative size influence NIM, but also on whether ownership structure conditions the impact of these factors on profitability. Employing a two-step system generalised method of moments estimator, the results indicate strong persistence in NIM, highlighting the structural nature of banks’ pricing behaviour. Capital strength and liquidity are found to enhance margins, while cost inefficiency adversely affects profitability, particularly in private sector banks. Although ownership does not exert a direct effect on NIM, it significantly alters the way operating costs translate into margins across public and private banks. The findings underscore the importance of internal balance sheet management and institutional structure in shaping interest margin dynamics in the Indian banking sector.

JEL Codes: G21, C01, C23